Two Harbors Investment Corp · NYSE:TWO
Two Harbors Investment — Q2 2012 Earnings Presentation
21 slides from Two Harbors Investment's earnings presentation, Aug 1, 2012
Slide 1: 2012 Second Quarter Earnings Call
Two Harbors Investment Corp. August 2, 2012 2012 Second Quarter Earnings Call
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements This presentation includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ from expectations, estimates and projections and, consequently, reade
Slide 3: Executive Summary
3 Executive Summary Delivered Exceptional Results and Advanced Strategic Initiatives Delivered total return on book value of 6.9%1 and comprehensive income of $0.66 per share. Achieved total stockholder return of 79.0% since we commenced operations in October 2009, or 23.5% on an annualized basi
Slide 4: Key Macroeconomic Update
4 Key Macroeconomic Update Key Macroeconomic Factors that Impact our Business Home Prices ― Signs of stabilization and even improvements in certain markets. ― National home prices were up 0.2% year-over-year as of June 30, representing the first annual increase since 20071 ― Buying single family r
Slide 5: Business Diversification
5 Business Diversification Single Family Residential Properties ― Purchased $72 million in properties as of June 30. ― Amassed a portfolio of approximately $120 million of properties as of the end of July. ― Represents an attractive asset class given long duration, current yield and potential home
Slide 6: Financial Summary
6 110 Financial Summary 110 Core Earnings1 increased to $76.1 million, or $0.35 per weighted average share. Drivers of Core Earnings ― Impacted by capital deployment from February 2012 capital raise ― Lower net interest spreads on securities acquired in recent months ― Consistent expense ratio ―
Slide 7: Book Value
7 Book Value Change in Stockholders’ Equity (In millions, except for per share amounts) Q1-2012 Book Value Q1-2012 Book Value per Share (diluted basis)1 Q2-2012 Book Value Q2-2012 Book Value per Share (diluted basis)1 Beginning stockholders’ equity $ 1,270.1 $ 9.03 $ 2,072.2 $ 9.67 Net proceeds from
Slide 8: Portfolio Performance Summary
Portfolio Performance Summary 8 110 110 Achieved total return on book value of 6.9%1 for Q2-2012. Performance driven by both Agency and non- Agency strategies. Agency portfolio experienced narrower net interest spread. 4.7% 4.3% 3.5% 3.5% 3.3% 8.8% 9.8% 9.7% 9.7% 9.6% 5.4% 5.5% 4.8% 4.9% 4.6%
Slide 9: Low Loan Balance Pools Outperformed
9 Low Loan Balance Pools Outperformed Performance of Low Loan Balance Pools 30-Year TBA Fannie 4.5 Two Harbors’ 30-Year $85K Max Pools 4.51 Payup Price, As of March 31, 20122 $ 106.39 $ 109.22 $ 2.83 Price, As of June 30, 20122 $ 107.33 $ 111.35 $ 4.02 Change in Price ($) $ 0.94 $ 2.13 Change in Pri
Slide 10: RMBS Portfolio Composition
RMBS Portfolio Composition 10 Portfolio Composition (1) Includes Agency Derivatives (“IIOs”) of $277 million as of June 30, 2012. (2) Home Equity Conversion Mortgage loans (or “HECM”) are loans that allow the homeowner to convert home equity into cash collateralized by the value of their home. As of
Slide 11: Key Portfolio Metrics
11 110 Key Portfolio Metrics 110 Continued to realize low and stable CPRs 97% of Agency securities with implicit or explicit prepayment protection Targeted debt-to-equity ratios: ― Agency: 6-7x ― Non-Agency: 1.0-1.5x (1) Weighted average cost basis includes RMBS principal and interest securiti
Slide 12: RMBS Market Commentary
110 12 RMBS Market Commentary 110 Interest rates at historic lows Yields available in most target mortgage asset classes are generally lower Agency ― Funding is expected to remain low ― Higher prepayments due to lower rates and effectiveness of HARP Non-Agency ― Experienced sharp rally since
Slide 13: Appendix
Appendix "TWO HARBORS
Slide 14: Q2-2012 Return on Book Value of 6.9%
14 Q2-2012 Return on Book Value of 6.9% Return on book value (Per diluted share amounts, except for percentage) Book value at June 30, 2012 $ 9.94 Book value at March 31, 2012 9.67 Increase in book value 0.27 Dividend declared in Q2-2012 0.40 Return on book value ($) $ 0.67 Return on book value (%)
Slide 15: Operating Performance
110 Operating Performance 110 $9.73 $9.30 $9.03 $9.67 $9.94 $- $2.50 $5.00 $7.50 $10.00 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Book Value per Share ($) $13.5 ($18.0) $19.0 $195.7 $141.6 7.0% (5.6%) 6.0% 44.5% 26.6% -25.0% -5.0% 15.0% 35.0% ($20.0) $30.0 $80.0 $130.0 $180.0 Q2-2011 Q3-2011 Q4-2011 Q
Slide 16: Operating Performance
16 Operating Performance Operating Performance (In millions, except for per share amounts) Core Earnings Realized Gains Unrealized MTM Q1-2012 Financials Core Earnings Realized Gains Unrealized MTM Q2-2012 Financials Interest income $ 85.5 $ - $ - $ 85.5 $ 105.9 $ - $ - $ 105.9 Interest expense 11.5
Slide 17: Portfolio Metrics
17 110 Portfolio Metrics Portfolio Yield Realized Q1-2012 At Mar. 31, 2012 Realized Q2-2012 At Jun. 30, 2012 Annualized yield1 4.9% 4.7% 4.6% 4.5% Agency1 3.5% 3.5% 3.3% 3.3% Non-Agency 9.7% 9.7% 9.6% 9.6% Cost of financing2 1.0% 1.0% 1.0% 1.0% Net interest spread 3.9% 3.7% 3.6% 3.5% Portfolio Metri
Slide 18: Financing and Hedging Strategy
June 30, 2012 Option Underlying Swap Swaption Expiration Cost ($M) Fair Value ($M) Average Months to Expiration Notional Amount ($M) Average Fixed Pay Rate Average Receive Rate Average Term (Years) Payer < 6 Months $ 9.5 $ 0 3.38 $ 1,000 2.95% 3M Libor 5.4 Payer ≥ 6 Months 60.8 38.2 48.33 3,200 3.70
Slide 19: Agency Securities as of June 30, 2012
19 Agency Securities as of June 30, 2012 Par Value ($M) Market Value ($M) % of Agency Portfolio Amortized Cost Basis ($M) Weighted Average Coupon Weighted Average Age (Months) 30-Year Fixed ≤ 4.5% $ 4,028 $ 4,381 48.7% $ 4,303 4.1% 9 5.0-6.0% 1,045 1,165 13.0% 1,134 5.4% 35 ≥ 6.5% 106 123 1.4% 121 7
Slide 20: Non-Agency Securities as of June 30, 2012
20 Non-Agency Securities as of June 30, 2012 Senior Bonds Mezzanine Bonds Total P&I Bonds Portfolio Characteristics Carrying Value ($M) $1,592 $416 $2,008 % of Non-Agency Portfolio 79.3% 20.7% 100.0% Average Purchase Price1 $50.55 $57.91 $52.07 Average Coupon 1.9% 1.2% 1.7% Collateral Attributes Ave
Slide 21: Agency: Vintage & Prepayment Protection
Agency: Vintage & Prepayment Protection Q1-2012 Q2-2012 $85K Max Pools1 38% 31% High LTV2 11% 21% HECM3 17% 17% Other Low Loan Balance Pools4 10% 11% Seasoned (2005 and prior vintages) 10% 7% Prepayment protected 7% 6% Low FICO5 4% 4% 2006 & subsequent vintages - Discount -% -% 2006 & subsequent vin
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